The payday lender CFPA carve-out

By Felix Salmon
March 11, 2010
Binya Appelbaum has the latest news on the shape of the consumer financial protection legislation which is likely to come out of the Senate:

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Binya Appelbaum has the latest news on the shape of the consumer financial protection legislation which is likely to come out of the Senate:

Payday lenders, pawnbrokers, car dealers and other companies that make loans but do not hold bank charters would be shielded from the scrutiny of a proposed federal consumer protection regulator under the terms of a tentative compromise between senators who are attempting to craft a bipartisan bill.

Under the proposal, the regulator would hold broad authority to write rules protecting borrowers, but officials would make regular compliance checks only at banks and, for the first time, at mortgage lenders, a step that still would exclude some of the nation’s largest and most controversial lending industries.

The first response to this is, of course, outrage that Corker, who has received substantial campaign donations from payday lenders, could singlehandedly manage to remove them from CFPA oversight.

But on the other hand, it does seem to mean that some kind of CFPA might make it into the Senate and then to reconciliation. And I’m holding out a tiny bit of hope that the CFPA might still be able to write rules governing payday lenders, even if it can’t conduct compliance checks with them or otherwise directly enforce those rules. That would still be an improvement on what we’ve got right now, especially if local state AGs could use those rules to prosecute payday lenders which were in violation.

As for the CFPA being “housed” in the Fed, it’s still far from clear what that means in practice and how much de facto independence it will have.

So overall I’m still in wait-and-see mode: while I’m not happy about the direction these negotiations are headed in, I’ve been of the opinion that the CFPA has been effectively gutted ever since the House removed the mandate that banks offer plain-vanilla products alongside their complicated ones. The Senate is really just chipping away at an institution which was always going to be much weaker than it should be.


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What utter nonsense. The notion that a consumer protection bill would ignore payday lenders is possibly the pinnacle of everything wrong with governance today. I understand that is a broad generalization, but as the counseling director for one of the larger HUD approved consumer credit counseling agencies in the U.S., and a former executive at collection agencies for years, the notion that these modern day loansharks can be omitted from legislation and that anyone could become ok with that so thatr some watered down version of the bill can pass is just plain sad. Does Mr. Corker not understand we see what drives his decision making processes?

Posted by Jeff.Baldwin | Report as abusive

The thin air you are breathing as you ride your high horse in writing about this topic must be impairing your logic Felix.

Do you have any idea how much it costs to run a Senate campaign, and do you honestly think the “substantial donations” of $17k is the only explanation for Senator Corker’s actions?

Posted by TinyOne | Report as abusive

States seem to be giving payday lenders more attention than banks; further, payday lenders tend not to have complicated products. The sort of things a CPFA would be supposed to address aren’t quite the sort of complaints made about payday lenders.

Posted by dWj | Report as abusive

If Corker managed to singlehandedly remove payday lenders from CFPA oversight it’s because he helped others to realize that the reform was never intended for the payday lending industry in the first place. The original point of the Consumer Financial Protection Agency was to regulate big banks and other annualized credit products. According to this definition, the payday lending industry should not be a part of CFPA regulation. The industry is far too small to cause a financial crisis like the one the CFPA is a response to.

Posted by PaydayLender | Report as abusive

Most states have their own laws in place for payday lenders. dWj makes excellent points. I work for a payday lender and all of our rates are posted in plain view for every customer to see. Every customer that leaves my store knows exactly what they are going to pay back when their loan is due. We offer $100-$300 loans that the average fee would be $15-$45 for. That’s less than an nsf fee from a bank in most cases. We don’t offer $200,000 loans like banks do that have sent the housing market and economy to shambles.

Posted by belingrif | Report as abusive